America’s Pink Slip Addiction

The Book The Disposable American validates what I (and many others) have long thought and wrote about. The addiction to headcount cuts as a way to improve business results is – well – crazy.

Wall Street actually applauds CEOs for announcing headcount cuts, even (especially) when those heads have been producing profitable results. And, analysts snip and snap at CEOs that have the audacity to care about the people who work for them (Costco’s CEO is just one example.) Is it really worth an extra nickel a share to demoralize the surviving heads? Even if the company doesn’t care about its people – here’s a hard cold bottom line fact: Headcount cuts also reduces the number of people out there that can buy the company’s product. Even if they get another job, it’s frequently not at the same pay level as they previously had. (A lot of those “new jobs” we hear about are in the lower-paid service sector. Wal-mart greeters and such. Tough to go from $50,000 a year to $18,000 and still buy that new house, SUV or iPod, folks.)

Just a bit from the NYT article about the book:

The layoff, Mr. Uchitelle argues, has transformed the nation. At least 30 million full-time American employees have gotten pink slips since the Labor Department belatedly started to count them in 1984. But add in the early retirees, the “quits” who saw the layoffs coming, and the number is much higher — a whole ghost nation trekking into what for most will be lower-wage work. This is the Dust Bowl in our Golden Bowl, and to Mr. Uchitelle, layoffs in one way are worse than the unemployment of the 1930’s. At least then, most of the jobless came back to better-paid, more secure jobs. Those laid off in our time almost never will.

Mr. Uchitelle effectively wrecks the claim that all this downsizing makes the country more productive, more competitive, more flexible. He is willing to admit that downsizing can be necessary. “The global economy is not to be denied,” he writes. But to lay off is now like a business school tic, whether it makes any sense or not. With fewer employees, many companies begin to crumble. Innovation also suffers. “Rather than try to outstrip foreign competitors in innovation, a costly and risky process, we gave up in product after product,” Mr. Uchitelle writes. As he points out, many of the business stars now are companies, like Southwest Airlines, that have refused to downsize at all. A growing number of economists argue that layoffs cause more problems than they solve.

‘nuf said.

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